Callon Petroleum (CPE)

[dan_s]

My Take on all of this is "Buy the Dip". This is a strategic acquisition that fits like a glove with existing leasehold.
---------------------------------------------------
NATCHEZ, Miss., May 24, 2018 /PRNewswire/ -- Callon Petroleum Company (CPE) ("Callon" or the "Company") today announced that its wholly owned subsidiary, Callon Petroleum Operating Company, has entered into a definitive agreement to acquire certain producing oil and gas properties and undeveloped acreage for total consideration of $570 million in cash from Cimarex Energy Co. The Company intends to fund the cash purchase price with the net proceeds of an equity offering announced concurrently with the announcement of this acquisition, cash on hand and/or incurrence of long-term indebtedness.

Key attributes of the acquisition include:
•the addition of approximately 28,657 net surface acres to our Spur operating area in the Delaware Basin, over 90% held by production, that is directly adjacent and highly complementary to our existing position;
•current net production of approximately 6,831 barrels of oil equivalent per day (approximately 73% oil) for the first quarter of 2018, based on information provided by the seller;
•estimated delineated base inventory of 212 net identified horizontal drilling locations targeting the Third Bone Spring, Wolfcamp A and Wolfcamp B zones, with approximately 86% to be operated by Callon. Over 60% of the inventory is comprised of well locations with laterals of 7,500 feet or more;
•meaningful opportunities for enhanced development efficiencies from increased scale, integration of infrastructure and multi-well pad development; and
•additional potential horizontal drilling locations from emerging prospective zones in the Second Bone Spring and Wolfcamp C formations.

On a pro forma basis, assuming the closing of the acquisition, Callon's aggregate Permian Basin position will include approximately 86,000 net surface acres concentrated in four core operating areas within both the Midland and Delaware Basins.

Joe Gatto, President and Chief Executive Officer commented, "This acquisition of highly complementary assets is an important step in continuing to build upon our Delaware Basin entry in late 2016. Upon completion, we will own a leasehold position of almost 47,500 net acres in our Spur operating area and over 86,000 net acres in the broader Permian Basin. Given the location of the acquired position and associated established infrastructure, we are positioned to benefit from increased lateral lengths on the combined position as well as scale benefits from larger pad development concepts." He continued, "Importantly, this acquisition includes a substantial amount of mature, oil-weighted production that provides a solid, current return on capital employed and drives immediate accretion on several key operational and financial metrics. Minimal drilling obligations, multiple target zones and a highly contiguous operated position all contribute to operational flexibility which will enhance our developmental efficiency while also affording organic inventory growth opportunities in emerging zones within our expanded Spur footprint. Looking forward, we expect the acquisition to contribute to a total fourth quarter 2018 exit rate of over 40,000 boepd, assuming only minimal incremental activity above our existing base program, and improved optionality for an increase in our development plans for 2019."

CPE's Q1 production was 26,567 Boepd.

The pending acquisition is expected to close on or before September 10, 2018, subject to the completion of customary closing conditions.

Website Presentation
The Company has posted on its website, as of May 24, 2018, a presentation that includes additional information on the pending transaction. The presentation, entitled "Acquisition Overview" may be found by navigating our website at www.callon.com, selecting "Investors" then "Presentations."

[dan_s]

Here is how they paid for the asset acquisition from Cimarex.
----------------------------------------------------
Sold common stock:
NATCHEZ, Miss., May 30, 2018 /PRNewswire/ -- Callon Petroleum Company (CPE) ("Callon" or the "Company") announced today the closing of its previously announced underwritten public offering of 25,300,000 shares of its common stock, including 3,300,000 shares sold to the underwriters pursuant to their over-allotment option to purchase additional shares, which the underwriters exercised on May 29, 2018. Following this issuance, Callon now has 227,495,770 shares of common stock issued and outstanding. The Company received approximately $288.6 million of total net proceeds from the offering after deducting underwriters' discounts and commissions and estimated offering expenses. The Company intends to use the net proceeds from the offering to partially fund the previously disclosed purchase from Cimarex Energy Co. of certain producing oil and gas properties and undeveloped acreage in the Delaware Basin. If the pending acquisition is not consummated, the Company intends to use the net proceeds from the offering to fund a portion of its exploration and development activities, a potential redemption of its preferred stock, and for general corporate purposes, which may include leasehold interest and property acquisitions, repayment of indebtedness, and working capital.

Sold debt:

NATCHEZ, Miss., May 31, 2018 /PRNewswire/ -- Callon Petroleum Company (CPE) ("Callon" or the "Company") announced today that it has priced $400 million aggregate principal amount of its 6.375% senior unsecured notes due 2026 (the "notes") in a private offering that is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). This represents an increase of $100 million over the aggregate principal amount previously announced. The sale of the notes is expected to close on June 7, 2018, subject to customary closing conditions. The notes will be initially guaranteed on a senior unsecured basis by the Company's wholly-owned subsidiary, Callon Petroleum Operating Company, and may be guaranteed in the future by other subsidiaries.

A portion of the net proceeds from the offering is expected to be used to partially fund the previously disclosed purchase from Cimarex Energy Co. of certain producing oil and gas properties and undeveloped acreage in the Delaware Basin. The balance of the net proceeds from the offering is expected to be used to repay amounts borrowed under the Company's senior secured revolving credit facility and the remaining proceeds, if any, for general corporate purposes. If the pending acquisition is not consummated, the Company intends to use the net proceeds from the offering to fund a portion of its exploration and development activities, a potential redemption of its preferred stock, and for general corporate purposes, which may include leasehold interest and property acquisitions, repayment of indebtedness, and working capital.

The notes and the related guarantees to be offered have not been registered under the Securities Act or any state securities laws and unless so registered, the notes and the related guarantees may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. The Company will enter into a registration rights agreement with respect to the notes and the related guarantees. The notes and the related guarantees are expected to be eligible for trading by persons reasonably believed to be qualified institutional buyers in the United States under Rule 144A under the Securities Act and outside the United States pursuant to Regulation S under the Securities Act.

[dan_s]

Taking all of the stuff above into consideration, I have updated my forecast/valuation model for CPE and posted it to the EPG website. I have also lowered the realized oil price to take into consideration the big Permian Basin differentials.

My valuation declines by $1.00 to $17.00/share. First Call's price target is $16.94/share.

Note that none of the analysts' forecast submitted to Reuters that are used to come up with the First Call price target above have been updated to include the acquisitions or the equity + debt offerings above.

[cmm3rd]

Dan,

Thanks for your updated analysis.

CPE has taken about a 25% reduction in share price over the last 10 trading sessions (5/22 to 6/4 so far) on about twice the normal trading volume. That would imply the market is skeptical about something relating to the company's future, if not specifically about these deals.

As you suggested, I have placed a call to IR, so far without a return call, to ask about whether transport of their production for the remainder of 2018 and 2019 is secured by contracts, and, more broadly, their view of pricing for their products going forward (if I understand correctly, you are using $58.37 and $3.82 for 2018 as a whole and $58 and $4 for 2019, after effect of hedges and regional price diffs, and including ngls).

Do you have access to any analyst reports that might shed light on what assumptions they might be using? RJ?

Thanks again.

cmm3rd

[dan_s]

I posted the new RJ oil price forecast under The View From Houston tab.

For those of you that don't follow CPE closely: They report natural gas and NGLs on a combined basis. Several companies do this. CPE's actual prices (including cash settlements on their hedges) in the first quarter were $3.89/mcfe for natural gas + NGLs and $57.47/bbl for crude oil. Their realized prices should be higher than what I now have in my forecast/valuation model for the 2nd quarter.

Each company needs to evaluate the impact of the Permian Basin takeaway capacity issue on their realized prices. Keep in mind that big hits will only be on the oil that must be taken out by truck or rail. That is a small percentage of the Permian oil.